When the Land & Buildings Transaction Tax (LBTT) came into being on 1st April 2015 most people didn’t fully appreciate that those who entered into a commercial lease on or after that date, where the lease triggered the requirements for an LBTT Return, would then be required to submit an LBTT Return on the third anniversary of the “effective date” (this will most likely be the date of entry under the lease) and every 3 years thereafter. Commercial leases can often last a long time and the requirement is that, over time, LBTT is paid on the actual rent paid.
Are there any circumstances where this doesn’t apply?
Just to be clear, a Return is NOT required for any lease entered into before 1st April 2015 that was subject to either Stamp Duty or Stamp Duty Land Tax.
Do we just have to make an LBTT Return every 3 years?
LBTT Returns also have to be made if there’s an Assignation of the lease (the Assignee being responsible for the Return) or where there is a variation in the terms of the lease.
Why is the 3 yearly Return necessary?
The thinking behind this latest legislation is that when someone buys or leases a property, the LBTT paid is based on the value of the transaction. In a purchase transaction establishing the value is pretty straight forward because the tax is generally payable on the purchase price (plus VAT if applicable). It’s more difficult to assess the capital value in a lease transaction because there will be regular rent reviews which usually means an increase in the rent (although it can do down too – but that tends to be rare) and there may be a variation in the terms of the lease which has an impact on the rent. The lease may be assigned to someone else and, again, that might have an impact on the rent.
The Scottish Government decided, when bringing LBTT into effect, that the only way to ensure they received the correct level of tax to cover the entire length of the lease and the variable nature of the rent, was by having regular reviews – the LBTT Return every 3 years is the way they decided to do this.
Who is responsible for making the Return?
The tenant has to make the Return and if the tenant fails to make the return within 30 days following any 3 year anniversary of the start of the lease, or makes the return but then fails to pay any tax due, penalties will be applied which the tenant will have to pay.
This area of law is complex and we recommend that you discuss any concerns you have with us. It is important to remember that if you are a tenant and your lease is subject to LBTT, it is your (not our) responsibility to make the LBTT Returns when they fall due – put the dates in your diary!
New LBTT Relief for first-time buyers
Since the 30th June 2018 first-time buyers have enjoyed an LBTT break. Any first-time buyer where the “effective date” (normally the Date of Entry) is after 30th June 2018 and where the contract (Missives) were concluded after 9th February 2018 will be eligible.
That means if you are a first-time buyer, the threshold at which you could pay LBTT has been increased from £145,000 to £175,000 with the maximum relief available being £600.
If you’re a first-time buyer and are looking to purchase a property at more than £175,000, you can use the Revenue Scotland LBTT Calculator to work out how much LBTT you will have to pay. You can access the calculator by clicking here.
If you would like further information on LBTT, please connect to the Revenue Scotland website where you’ll find very detailed information and instructions. You can visit the Revenue Scotland website by clicking here.
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